Fuel Tech, the Warrenville, Illinois-based company best known for its air pollution control technologies, has quietly been building a new weapon in its arsenal: Dissolved Gas Infusion (DGI). While analysts have focused on the potential upswing in their traditional APC segment thanks to the EPA's Good Neighbor rule, a closer look at the Q1 2024 earnings call reveals a much more intriguing story unfolding. Fuel Tech is subtly positioning itself to become a major player in the burgeoning water treatment market, and their unassuming DGI technology might be the key to unlocking explosive growth.

For years, Fuel Tech has diligently catered to the power generation industry, providing solutions for coal-fired and natural gas units to reduce emissions. Their FUEL CHEM segment, despite facing headwinds from warmer weather and plant outages, remains a steady contributor with an established customer base. But it's DGI, tucked away in the R&D expenditures and mentioned almost as an afterthought in the earnings call, that truly captures the imagination.

Fuel Tech's CEO, Vince Arnone, paints a picture of DGI not as a fledgling project but as a burgeoning force, poised to disrupt the water treatment landscape. The company has already demonstrated its prowess in the aquaculture market, significantly enhancing shrimp production through efficient oxygen injection. And the applications, Arnone emphasizes, extend far beyond shrimp farms. Imagine odor control in municipal water lift stations, pH adjustments in industrial wastewater, and even potential applications in agriculture and horticulture.

The recent hiring of a seasoned water and wastewater treatment expert, a move casually tucked into Arnone's commentary, speaks volumes about the company's commitment to this new venture. It's a signal that Fuel Tech isn't simply dipping its toes into the water, but is instead preparing for a full-fledged dive.

Fuel Tech's Potential DGI Revenue in 2024

The following chart illustrates the potential revenue Fuel Tech could generate from DGI in 2024, based on different numbers of contracts for smaller and larger DGI systems.

Now, let's delve into the numbers. Arnone mentions negotiating on-site demonstrations of DGI with potential customers and anticipates securing the first commercial contract in 2024. He projects these initial systems to be on the smaller side, priced between $100,000 and $200,000 for capital sales, with larger systems potentially exceeding $1 million.

Consider this: if Fuel Tech secures just ten contracts for smaller DGI systems in 2024, it translates to $1 million to $2 million in revenue, a substantial figure for a company whose current annual revenue hovers around $27 million. And this is just the tip of the iceberg. The potential in municipal and industrial applications alone is vast. The $10.3 billion settlement 3M agreed to pay for PFAS contamination, while not a direct target for DGI at present, showcases the immense financial stakes involved in water treatment.

Fuel Tech's strong financial position, boasting over $32 million in cash and investments with zero debt, provides the perfect launchpad for DGI's commercialization. The company can confidently pursue aggressive marketing and business development efforts without straining its balance sheet.

Here's the hypothesis: as the Good Neighbor rule slowly winds its way through the courts, Fuel Tech is quietly building a parallel growth engine in DGI. While the APC segment might experience a surge in the coming years, DGI's potential is truly limitless, unconstrained by regulatory timelines and capable of disrupting multiple industries.

Fuel Tech, the air pollution control specialist, is strategically evolving into a water treatment powerhouse. Don't be surprised if this sleeping giant, fueled by its innovative DGI technology, wakes up to dominate a whole new market.

"Fun Fact: The global water treatment market size was valued at USD 309.6 billion in 2022 and is projected to grow at a compound annual growth rate (CAGR) of 7.1% from 2023 to 2030."